"Capture" Still Matters

In the wake of the financial crisis, with its emphasis on "USA, Inc.," some may be tempted to think that issues of regulatory capture are so 2005.  But not according to Simon Johnson, who writes that "What we have now is not a free market.  It is rather one of the most complete (and awful) instances ever of savvy businessmen capturing a state and the minds of the people who run it.”  This is at least in part because the bailout favored a limited number of banking players, thereby created a playing field that is now “massively tilted in favor of these banks.”  This is precisely what I envisioned when I wrote my forthcoming Temple Law Review article, “Finding State Action When Corporations Govern” (Why blog, if not to occasionally shamelessly self-promote?):

The financial crisis of 2008 is blurring the lines between the State and the private sector. While painful, this process may facilitate a re-examination of the state action doctrine. This Article argues that corporations have for some time been increasingly taking on roles as pseudo-governmental actors without incurring the accountability to the people generally associated with state action. This is happening via new governance, and while the recent financial crisis may suggest that the problems associated with new governance are waning, the reality is that the corporate consolidations likely to follow in the wake of the downturn - together with the government's oft-stated desire to divest its bailout stakes in private companies as soon as possible - will result in even more powerful corporate actors with an even greater ability to govern.

By the way, I have to recommend another Johnson post—this one on Goldman allegedly going “rogue” in Europe by helping governments there hide their debt—if for no other reason than the quotes.  Here are two of my favorites:

“When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.”

“If [Goldman] is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.”

SJP